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14 March 2008
On February 26 2008 the federal government announced its 2008 Budget. With this budget the government aims to strike a delicate balance between further opening Canada’s borders to trade and investment and security measures which would seem to restrict the borders to trade, investment and travel. While the budget highlights security as a primary area for concern, the same sustained focus on negotiating bilateral trade and investment agreements as occurred in 2007 is expected. Moreover, although the budget includes a number of measures to increase the ability of Canadian industries and manufacturers to remain competitive in a global marketplace, it has been criticized for not going far enough in terms of offering financial support and incentives to industry.
The budget indicates an allocation of C$29 million over the next two years to address priorities established under the Security and Prosperity Partnership (SPP) and tackle obstacles to cross-border trade within North America. The SPP is a framework for trilateral dialogue on security and prosperity issues between the leaders of Canada, the United States and Mexico. In August 2007 Prime Minister Harper met with President Bush and President Calderón to establish the priorities of the SPP, which include:
The objective is to establish a stronger North American partnership, building on the benefits introduced by the North American Free Trade Agreement, which is touted as making North America one of the most dynamic and prosperous economic regions in the world. The government funds that have been identified for use in the SPP will be used to increase efficiency at the Canada-US border through improved cross-border communication systems, improved wait-time information and the elimination of duplicate baggage-screening facilities. The funds will also be used for efforts designed to increase regulatory cooperation on projects in the chemical, automotive and transportation sectors.
The government has also indicated that it intends to continue investing in its Global Commerce Strategy, the objective of which is to ensure that Canadian businesses remain competitive in an increasingly global economy. As a result of its focus on trade and investment, Canada has announced two new free trade agreements: one with the European Free Trade Association (an organization composed of Liechtenstein, Switzerland, Iceland and Norway) and the other with Peru. Budget 2008 reinvests C$89 million to support the Global Commerce Strategy, which, in addition to maintaining a focus on negotiating bilateral agreements, will also result in investments to Canada’s foreign service through the addition of new embassies abroad and an increased commercial presence for Canadian companies in rapidly growing international markets.
The multiplicity of benefits achieved through international trade and the openness of Canada’s borders are accompanied by certain risks. The heightened perception that Canada must be insulated and protected from international threats is apparent from the budget’s emphasis on border security. In total, C$174 million over two years will be invested in making the border 'smarter' and more secure. The border will be made smarter through the implementation of measures that will affect travellers, as well as those who transport goods back and forth across the Canada-US border. A sum of C$26 million over the next two years will be devoted to the introduction of biometric data (eg, fingerprints and live photographs) as a means of personal identification at customs entry points. Moreover, by 2011 the government intends to introduce a higher-security electronic passport, necessitating renewals only every 10 years as opposed to the current five-year period. Over the next two years C$14 million will be spent to expand the joint Canada-US NEXUS programme for low-risk frequent travellers across the border.
Of the C$174 million allocated for border security, C$75 million will be devoted towards ensuring that the Canada Border Services Agency has the resources necessary to manage Canada’s borders effectively. The government has also pledged C$10 million to improve the border crossing at Lacolle, Quebec. This advancement in border infrastructure aims to enhance safety and relieve traffic congestion at one of Canada’s key trade corridors for commercial transportation.
Due to the fact that the Great Lakes/St Lawrence Seaway is a key economic region with several bridges and tunnels and is vital for cross-border trade, security in this area is a government priority. As an interim measure in 2005 the government introduced a marine security operations centre in the Great Lakes/St Lawrence region. The Royal Canadian Mounted Police-led unit works with local police services monitoring security threats and criminal activity on the Great Lakes and the seaway. The 2008 Budget indicates that this centre will become a more permanent fixture through the injection of C$15 million into the facility over the course of the next two years. The operations centre is intended to facilitate the collection, analysis and sharing of information between different government agencies and departments.
Over the past several years a strong Canadian dollar, combined with difficulties in the US housing and automotive sectors, has resulted in depressed profit margins for companies that rely on export sales to the United States, particularly the Canadian forestry and automotive industries, which have expressed disappointment with the 2008 federal budget.
In recognition of the challenges the forestry industry sector has faced due to the softwood lumber dispute and increased competition from foreign producers, the government has committed to provide C$1 billion in tax relief for the forestry sector by 2013. The government has also allocated C$10 million to Natural Resources Canada for an initiative to promote Canada’s forestry sector in international markets as a model for environmental innovation and sustainability. Moreover, C$127.5 million will be invested in the Forestry Industry Long-Term Competitiveness Initiative to support innovation and assist the forestry sector in shifting towards higher-value products and tapping into new markets. Representatives of the forestry industry have criticized these initiatives for falling short of the amounts the industry will need to reduce its dependence on fossil fuels, curb greenhouse emissions and waste by-products or live up to its commitment to become carbon-neutral by 2015.
The 2008 Budget also indicates the extension of a programme that aims to provide manufacturers with a tax break on new equipment, essentially permitting manufacturers to speed up the rate at which they can write off equipment investments, in the hope of improving productivity and boosting export sales in the automotive sector. The automotive industry has criticized this capital cost allowance measure as not going far enough to assist the industry with the financial difficulties it faces. The budget has extended the programme for three years, but under less generous terms than were originally put forth in the 2007 Budget. The 2008 Budget also sets aside C$250 million over five years for auto research-and-development projects, including projects to develop more fuel-efficient vehicles as well as “enhancements” to existing Export and Development Canada programmes to assist smaller auto suppliers and other manufacturers in obtaining access to credit.
The 2008 Budget indicates two broad themes on which the Canadian government appears to be focusing: (i) enhancing border security to address heightened security concerns while ensuring that the flow of trade is not adversely affected; and (ii) enhancing the global competitiveness of Canada’s industries, for instance, the forestry and manufacturing sectors, which have been particularly hard hit by the strong Canadian dollar. However, whether the budget does enough to address the concerns of the domestic industry remains to be seen, especially as 2008 is shaping up to be a challenging year for Canada's economy.
For further information on this topic please contact Cliff Sosnow or Elysia Van Zeyl at Blake Cassels & Graydon LLP 's Ottawa office by telephone (+1 613 788 2200) or by fax (+1 613 788 2247) or by email (email@example.com or firstname.lastname@example.org). Alternatively, contact Prakash Narayanan at Blake Cassels & Graydon LLP's Toronto's office by telephone (+1 416 863 24 00) or by fax (+1 416 863 2653) or by email (email@example.com).
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Elysia Van Zeyl